China announced Monday that its gross domestic product growth slowed to 7.5% in the three months ended in June. Its economic growth is still strong, compared with much of the world. But recent single-digit expansion rates are a notable comedown from a 14.2% peak in 2007.
Unlike so often in the past, though, the Chinese leadership shows little inclination to act. Indeed, the mood in Beijing is studiedly sanguine. Not only did the national statistics bureau describe yesterday’s figures as “within the reasonable range for the year”. Finance Minister Lou Jiwei even hinted, last week, that growth could drop well below 7 per cent over the coming months (although his remarks were later airbrushed into line with the official 7.5 per cent target by the state news agency).
The biggest losers from China’s rebalancing are likely to be the major commodity-producing emerging markets, most of which lie in Latin America, the Middle East and parts of Africa, but China’s slowdown will impact on different commodity groups in different ways.
Raw materials were the main beneficiaries of the Chinese economy boom, for over ten years. Now that Europe is in crisis, China weighs more than ever in the global activity, 13% today vs. 5% in 2006. However, it is slowing from month to month, especially factories producing for export markets like Europe. In China, the government put an end to easy credit to ease the housing bubble in the country. Beijing has also stopped subsidizing massive infrastructure. “The truth is that the China resources boom is over,” Australia’s prime minister, Kevin Rudd, said Thursday in a speech. The unemployment rate in Australia, a mining powerhouse, is 5.7%, its highest in four years.
As a consequence, heavy industries slowed, especially steel mills. This means a less frantic imports of the major steel ingredient, iron ore: its price, now between 110 and 120 dollars per ton, has lost 15% this year, to the great displeasure of China suppliers, like India or Australia. It also means a lesser need for nickel, chromium or South African manganese in alloys and less Chilean copper. China, which had come to consume nearly half of the available metals, has a major influence on prices and those of nickel, for example, are at their lowest in four years.
Also a major coal consumer, China is starting to switch to gas, less polluting to produce electricity. Therefore, Australian and South African coal prices are down to less than $80 per ton. China has even reduced its imports of oil and naphtha used in the industry.
On the other hand, imports of gasoline continues to rise, due to nearly 11 million new cars on the roads in the past six months. This is the side of the Chinese economy which still grows strongly, in line with the government wishes: individual consumption. The smooth transition to a more balanced Chinese economy is, then, in all our interests. But the transformation will be a long and difficult one, and it has only just begun.